IN THE OHIO SUPREME COURT

Transcription

1 n, 0 ^^^^^^^NPIL IN THE OHIO SUPREME COURT CITIMORTGAGE, INC. " CASE NO Plaintiff/Appellant * On Appeal from the Stark County Court of Appeals, Fifth -vs- Appellate District JAMES ROZNOWSKI, et al. Defendant/Appellee. x Court of Appeals Case No CU 093 MEMORANDUM IN SUPPORT OF MOTION TO RECONSIDER Andrew M. Engel ( ) Kendo, Alexander, Cooper & Engel, LLP 7925 Paragon Road Centerville, OH (937) Fax: (937) aengel@kacelawllp.coin Attorney for Am icus Curiae Terry Smith Peter D. Traska ( ) TRASKA LAW FIRM, LLC PO BOX Cleveland, Ohio (216) (Telephone) (216) (Facsimile) Attorneys for Appellees.lames A. Roznowski and Steffanie M. Roznowski David A. Wallace ( ) Karen M. Cadieux ( ) CARPENTER LIPPS & LELAND LLP 280 Plaza, Suite North High Street Columbus, OH (614) (Telephone) (614) (Facsimile) wallace@carpenterlipps.com cadieux&arpenterlipps.com Erin M. Laurito ( ) Colette S. Carr ( ) LAURITO & LAURITO, LLC 7550 Paragon Road Dayton, OH (937) Attorneys for Chase Home Finance, LLC s :? 5,,. ^;y s E. 9 L^"r^^ h ^'y^ ' } 3^.r/ 7i ^ 4 ^ssyr'd 0 " il.,.r T ^>tif f`"'%^^^' %'9 s' ",f^y`i ^. 2/`-^y: ^^,f^rtri Gf'4,i 4.i' ^^; '' :,.^e y^3 -e't r, ^'^,f

2 Amicus curiae, Terry Smith supports the Roznowskis' motion to reconsider this Court's decision of May 15, I. INTRODUCTION In its decision, this Court held that a foreclosure judgment entry which awards judgment for certain categories of darnages without making a finding of the anlount due for those items, is a final, appealable order under R.C The Court's decision also states that the burden of proof shifts to the borrower at confirmation of a sale to contest the amounts the lender claims to have advanced for those items. The syllabi of the decision are: 1. A judgment decree in foreclosure that allows as part of recoverable damages unspecified arnounts advanced by the mortgagee for inspections, appraisals, property protection, and maintenance is a final, appealable order pursuant to R.C (B)(1). 2. A mortgagor may contest amounts expended by a mortgagee for inspections, appraisals, property protection, and maintenance during proceedings to confirin the foreclosure sale and may appeal the order of confirmation of sale. In so holding, the Court declared that a judgment decree in foreclosure that determines the rights of all lienholders and others with an interest in the property is a final, appealable order. That holding is a correct statement of the law. That is not, however, the problematic issue involved in this case. The salient issue in this case does not involve the portion of the judgment entry that grants foreclosure. The troublesome portion of the judgment relates to the grant of legal relief- money damages. The arnicus curiae do not question the finality of the judgment on the equitable relief granted by the trial court. Their contention is that the relief granted on the lender's second legal claim is not fitial ARGUMENT Several portions of the Court's decision in this case appear to be inconsistent with other decisions of the Court. Many of those issues were not raised in the briefing of the case, and their relevance was not apparent until the Coui-t issued its decision. 2

3 A. 'I'tae Erpuity f Redemption Is Placed In Doubt As this Court has recognized, the right to redeern property is absolute. Women s Fed. Sav. 1Bank v. Pappadakes, 38 Ohio St.3d 143, 146, 527 N.E.2d 792 (1988). And Ohio law provides two distinct rights of redemption - one founded in common law and the other created by statute. See Hausman v. Dayton, 73 Ohio St.3d 671, 676, 653 N.E.2d 1190 (1995) (citing Hausser & Van Aken, Ohio R_eal Estate Law and Practice (1993) 744, Section 53.01(D)). In its decision in this case, the Court addressed at length the statutory right of redemption found in R.C It did not, however, discuss the common law equity of redemption. Thecommon law "equity ofredemption" is exercised by paying the debt, interest and court costs, "to prevent the sale of the property." Hausman, supra, at p. 676 (quoting Pappadakes, supra). The Court's decision in this case structured a procedure that would effectively bar a property owner fi om redeeming prior to sale of the property. The atnount needed to redeem, under the procedure outlined by the Court, cannot be determined prior to confirmation of the sale. The question naturally arises then whether Ohio still recognizes the equity of redemption. If so, is the equity of redemption now extended from the traditional three-day period after judgment to cojlfirmation of the sale? This Court's decision requires a property owner to live under the cloud of an intpending sheriff's sale before being able to redeem? Is it efiicient to reqture a home owner to pay the additioraal monies for the costs of a sheriff's sale before she is allowed to satisfy the debt? Moreover, there is a serious practical probleni with the Court's decision as it relates to an owner's exercise of the right of redemption. The Court noted that, "[w]hile mortgagors may need information regarding certain expenses advanced by the mortgagee, there is no evidence before us that unscrupulous mortgagees will willfully withhold that information in an attempt to prevent mortgagors from redeeming the property." Unfortunately, this assumption doesn't really address the core issue. While it is true that the statutory right of redemption is extended only to the judgment debtor, 3

4 see R.C , the common law equity of redemption is afforded to all mortgagors of the foreclosed property. See, McAvthuN v. Franklin, 15 Ohio St. 485, (1864); Pappaclakes, supra;hausnaan, supra. This would include non-borrower spouses who joined in the mortgage. It also includes heirs and legatees who acquired the mortgagor's interest by operation of law. The problem is that lenders are barred from providing account information to non-borrowers. Regulations promulgated under the Cramm-Leach-Bliley Act prohibit a financial institution from disclosing the very information the Court believes a non-borrower can obtain from a lender. 16 C.F.R prohibits the disclosure of "personally identifiable Iinancial information to third parties. "Personally identifiable financial information includes:... Account balance information, payment history, overdraft history, and credit or debit card purchase information. 16 C.F.R (o)(2). Thus, federal law bars the very exchange of information on which this Court's decision is based. This interference with the flow of information disturbs the seheme the Court contemplated in its decision. B. The Determination of Damaaes Is Now A Ministeria] Act This Court has repeatedly held that an order that grants liability but does not determinate damages is not a final, appealable order. State v.?'hreatt, 108 Ohio St.3d Ohio-905, T20 (citing State ex rel. A & D Ltd. Partnership v. Keefe (1996), 77 Ohio St.3d 50, 53, 671 N.E.2d 13). But it has also recognized that an exception to this rule occurs "where the computation of damages is mechanical and unlikely to produce a second appeal because only a ministerial task similar to assessing costs remains." Stateex 7-el. White v. Cuyahoga Metro. HousingAuth., 79 Ohio St.3d 543, 546, 684 N.E.2d 72 (1997). And it is on this exception that the Court's decision in this case was partially based. But the application of this exception appears to depart from prior precedent. This Court has not defined "ministerial" in any great detail, but it has examined specific issues and discussed whether they fell within the definition of "ministerial." For instance, this Court has held that assessing costs in a 4

5 criminal matter was mechanical and therefore ministerial. See, Threatt, supra at 20. On the other hand, this Cour-t has stated that "[d]etermining whether to grant prejudgment interest is not a merely ministerial task; it requires the trial court to find that "the party required to pay the judgment failed to make a good faith effort to settle" and that "the party to whom the judgment is to be paid did not fail to make a good faith effort to settle the case." Miller v. First Int'Z Fid. & TNust Bldg., Ltd., 113 Ohio St.3d 474, 866 N.E.2d 1059, Ohio-2457, ^7; See also,.moskovitz v. Mt. Sinai Nfed, Ctr (1994), 69 Ohio St.3d 638, 658, 635 N.E.2d 331. These cases suggest that theministerial-act exception is premised on the trial court not needing to exercise discretion in rendering the further judgment. See, State exnel. Daggett i^ Gessaman, 34 Ohio St.2d 55, 57(1973) (holding that "[i]n discovery practices, the trial court has a discretionary power not a ministerial duty.") Yet, by holding that borrowers have the right to contest the amounts sought for those advances, this Court also suggests that the trial court must exercise its discretion, make findings of fact and draw conclusions of law. Arid in fact, the language of the mortgage itself limits the amount of the recovery for the advances for property preservation.l And such language is common in Ohio mortgages. For example, the Fannie Mae Uniform Mortgage for Ohio provides that, after a default by the mortgagor: then Lender may do and pay for whatever is reasonable or appropriate to protect Lender's interest in the Property and rights under this Security Instrument, including protecting and/or assessing the value of the Property, and securing and/or repairing the Property OHIO - Single Fatnily-Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3036, Section 9 (found at The trial court must therefore make a determination not only of the amount advanced, but of the reasonableness and appropriateness ' Section 5 of the Open-End Mortgage provides that the "Lender may take reasonable action to protect and preserve such vacant or abandoned property." Section 7 permits the Lender to take action "necessaty to protect the value of the Property and the Lender's rights in the Propei-ty, including payment of taxes, hazard insurance," etc.

6 of those advances. If such action is merely ministerial, then the Court suggests that making findings of fact and conclusions of law are not really judicial acts, but purely a paperwork function. The Court's decision also seems also to be at odds with long-established Ohio law relating to the determination of attorney's fees. This Court and the General Assembly have both confirrned the enforceability of contractual provisions for the payment of attorney's fees. See, R.C ; Nottingdale Homeowner 'sassociation, Inc. v Darby, 33 Ohio St.3d 32, syll. (1987). And while such provisions are not generally enforceable in consumer foreclosure cases, they are generally enforceable in commercial foreclosures. This Court has previously held that when attorney fees are requested in the original pleadings, an order that does not dispose of the attorney-fee claim and does not include a Civ. R. 54(B) determination that there is no just cause for delay is not a final, appealable order. Internatl. Bd. of' Electrical WoNkei s, Local Union No. 8 v. TTcaughn Industries, L.L. C., 116 Ohio St.3d 335, 2007-Ohio- 6439, 879 N.E.2d 187, syll. 2; see also, State ex xel. Miller v. Brady, 123 Ohio St.3d 255, 2009-Ohio- 4942, 13 (2009) (an order granting attorney's fees, but deferring the determination of the amount of the fees, is interlocutory). Facially, there is no discernable difference between a contract claim for the reimbursernent of attorney's fees and one for the reimbursement of advances for property preservation and the like. And in this case, like Brady, supna, the lower court had granted judgment on a category of damages without determining the amount of those damages. What then is the rule that the parties and courts can take from this Court's decision as to the nature of the ministerial-acts exception? Does it apply generally to instarzces in which liability is adjudicated, but damages remain to be determined? If the Cou1-t intended to alter the general rule on determination of damages, does that rule apply to personal injury cases, as well? For example, ifthe judgment entry in an injury case finds liability for all past and future medical expenses, is the determination of the amount of those expenses a ministerial act? Did the Court intend to remove the determination of damages fi om the purview of the finder of

7 fact? Although these questions anay not be squarely before the Court, the ramifications of the Court's decision in this case could cause confusion in the lower courts across a wide range of case types. C. Propertv Owners' Due Process Rights During The Confirmation Process In its decision, this Court held that "[a] mortgagor may contest amounts expended by a mortgagee for inspections, appraisals, property protection, and maintenance during proceedings to confirm the foreclosure sale and may appeal the order of confirmation of sale." Roznowski syll. 2. It went on to state: Roznowski at 36. As part of this examination, the court must determine whether the amounts advanced for inspections, appraisals, property protection, and maintenance are accurate. Naturally, the mortgagor must have an opportunity to challenge these amounts and raise the issue on appeal if the mortgagor believes that the amounts the trial court determines are incorrect. In theory this may seem an appealing approach, but there is a serious due process concern with it. This Court has previously held that "[t]he Due Process Clause of the Fourteenth Amendment does not require that the mortgagor in a foreclosure proceeding must be afforded a hearing prior to the confirmation of sale." The Union Bank Co. v. Brumbaugh, 69 Ohio St.2d 202, syll.; see also, Shumay i^ Lake Claateau, Inc., 70 Ohio St.2d 20, syll. (1982). Rather, the trial court has discretion as to whether to hold a hearing. Id. If a mortgagor has no due process rights during the confirmation process, how can he be guaranteed the right to contest the amounts sought for advances? Did the Court intend to implicitly overrule I3rumbaugh and Vumay? Also, the Court stated that a party could exercise a limited appeal from the order of confirmation to raise error regarding advances. But the standard of review in appeals from confirmation orders is abuse of discretion. The standard employed in an appeal from a grant of summary judgment, on the other hand, is de novo. The differing standards of review would place the home owner at a 7

8 disadvantage when appealing from the confirmation order. Such a result raises additional due process and equal protection concerns. D. There Is A Simpler Solution The issue presented by Citimortgage is really one of the tail wagging the dog. This Court, and several courts of appeals, have struggled with how to provide a lender with complete relief while still entering a final judgment. The Court noted the concern of the Seventh District in LaSalle Bank Natl. Assn. v. Smith, 7th Dist. lvlahoning No. 11 MA 85, hio-4040.when it stated: "This is especially the case when the advances are future costs that have not occurred and potentially may not occur. To find that the judgment entry is nonfinal because it is [sic] does not compute future costs would mean that no judgment of foreclosure and sale would ever be final." "fhe Court's concern is appropriate, but the remedy - delaying determination of a damages portion of the plaintiff's claim - is not. The entire problem can be cured by proper pleading. In the standard foreclosure case, the lender seeks both money damages and foreclosure of the equity of redemption. The damages portion of the case actually has two components. The obvious one relates to the promissory note which represents the secured debt. The second element, however, is for any additional monies due under the mortgage, such as the advances which form the basis for this appeal. Thus, each foreclosure plaintiff actually has two distinct damages claims - damages for default under the note and damages for monies expended to preserve the property, pay taxes and insurance, and the like. The simple fact is that foreclosure plaintiffs could avoid this entire problenl by pleading their cases differently. They need only state two clainis for damages and one claim for foreclosure. Instead, most lenders lump the legal and equitable claims under the mortgage into a single count. Were they to separate the legal claim for advances under the mortgage from the equitable clainl for foreclosure, a trial court could then grant a judgment for damages under the note and issue a decree in foreclosure. 8

9 With a certification of "no just reason for delay," that judgment would be a final, appealable order, and the lender could proceed with a sale and preserve the issue of advances for later determination. After sale and confirmation, the lender would liave the option of moving for judgment as to its advances or dismissing that claim. As for the right of redemption, the trial need only condition the exercise of the right on resolution of the claim for advances. Thus, should a home owner want to redeem, she can deposit the znonies due under the judgment issued on the note and either through settlement or after hearing deposit any additional monies owed for advances. This approach would protect the interests of all parties. The lender can promptly obtain judgment and take a property to sale without fear of losing out on a portion of its damages. The borrower knows exactly what he owes on the note. The property owners can determine the minimum amount needed to exercise the right of redemption prior to sale of the property and can seek judicial assistance, if necessary, to determine the amount due for advances. The triai court can resolve foreclosure claims more quickly, and, in many cases, will likely avoid having to rule on the advances issue. But most importantly, this Court can avoid breaking with established precedent to accommodate a specific industry and creating confusion as to the applicability of its decision to other areas of law. CONCLUSION For the foregoing reasons, Amicus Curiae Terry Smith asks that the Court to reconsider its decision herein and affirm the Fifth District Court ofappeals's decision. Respectfully submitted, Andrew M. Engel ( ) Kendo, Alexander, Cooper & Engel LLP 7925 Paragon Road Centerville, O (937) Fax: (937) aeiigel@kacelawilp.com Attorney for Amicus Curiae Terry Smith

10 CERTIFICATE OF SERN7IC.E I certify that the foregoing was served via ordinary mail this 27th day of May 2014 upon the following: David A. Wallace ( ) Karen M. Cadieux ( ) CARPENI'ER LIPPS & LELAND LLP 280 Plaza, Suite North High Street Columbus, H Peter D. Trask-a ( ) TRASKA LAW FIRM, LLC Erin M. Laurito ( ) P BOX Colette S. Carr ( ) Cleveland, Ohio LAURITO & LAURITO, LLC 7550 Paragon Road Dayton, fi a yr/ ( 003"1-9/0`lf) ifcar, Andrew M. Engel 10